3.8.1-14: Land Value Capture as a Key Policy for Improving Conditions of Slum Dwellers

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Module 3, Section 8.1-14

Land Value Capture as a Key Policy for Improving Conditions of Slum Dwellers

8.1 Slum dwellers have migrated to urban areas either because land conflicts and appropriations have forced them off their rural lands and/or in the hope of finding employment. Their informal settlements have insecure land tenure, very poor quality housing and little or no water, sanitation, transportation and other public services. Many slum dwellers also experience food insecurity and health problems. Yet most slum dwellers are able and willing to work and actively seek wage employment or self employment.

8.2 A resident of Cambodia writes:

There has been a lot of coverage lately about the problem of child prostitution in our homeland. It has stir quite emotions here and abroad. There are many contributing factors that may cause child prostitution. I have picked one big and general contributing factor that seems to be the underlying factor to this sickening act.

First, please forgive me while I vent my emotions a bit. Around the world, Cambodians people are viewed as a peaceful, conservative, traditional people. Now, as these stories being bombarded in the press, Cambodia and its people are being mentioned with such countries such as Vietnam and Thailand...where child prostitution have been known to occur as frequent as the ticking of the clock.

URBAN SPRAWL is defined as a movement of residences of "good" and "richer" people from the big cities to the outskirt of towns and cities. While at the same time, the less fortunate families such as the farmers and the ranchers are moving into the cities.

The farmers are moving into the cities in hope of finding better paying jobs (like the textile factories) or they have lost their land due to corruptions. Now since there is a continuous mass migration of the farmers into the cities and all are looking to find that "better" paying job and when there are not enough jobs for everybody, what are these people going to do to put to feed their families? Most cannot return to their farms because they have lost it or sold it.

Moms, dads, aunts, uncles, and strangers are selling kids to the brothels.

Khmers was once a proud race. Our ancestors have left us with a historical monuments (Ankors) as to how they use to ruled this region in the world. Where are we now?

8.3 As we have previously noted, land value is highest in the urban centers of exchange and enterprise and increases as population grows and development intensifies. How could application of a full and robust land value capture system of public finance improve the lives of slum dwellers? Assuming that such a system is gradually but steadily implemented in stages during a five to ten year period, we can expect that:

The city would have a significant source of revenue without having to tax wage income or productive activities, so slum dwellers who find employment would bare no tax burden on their productive activities, thus increasing their purchasing capacity. Market forces would be harnessed for real wealth production, not for land speculation and real estate investment and profiteering.

Slum dwellers who begin small business enterprise would likewise have no pressure to pay taxes from their earnings. There would be no complaints that they were operating in “the gray economy.” Their efforts would more readily be considered as legitimate and socially acceptable.

Economic incentives harnessed by land value capture would put “infill development” pressure on underutilized or vacant land sites, thus enhancing economic development and the potential for jobs and housing for slum dwellers.

The necessity for clear and transparent land tenure records in order to implement land value capture would reveal who is making what claims to the land that slum dwellers inhabit. Thus it will be a matter of public record who is currently collecting land rent from slum dwellers and how much they are taking as private appropriation of these funds which should in fact be captured for public benefit of slum communities.

As a slum is a highly concentrated population per any given land area, and as slums are usually located in less desirable and therefore on lower cost land than land elsewhere in the city, an accurate assessment of the value of the land of slums and the apportionment of the land value capture fee to be paid will be significantly less per individual or family than in other areas of the city.

The recorded payment of the land value capture fee by those using any particular land area of the slum will confer rights to continue to use that land area, thus helping to settle land disputes and security tenure for land users.

Absentee landlords who claim title to slum lands will have to pay their fair share of land rent into the public fund. If they do not then their security of land title will be at risk

Those who own buildings and useful structures in slum areas will not need to pay taxes on any of the improvements they make to their current buildings or to any new ones. Slum dwellers, their land tenure now secure by their payment of the land value capture fee to the local authorities, would be encouraged to make improvements to their dwellings. Absentees, now unable to profit from the private capture of land rent, will also now have an incentive to make building improvements and hire slum dwellers to do so. Employed slum dwellers will be better able to afford improved housing. Or absentees might decide to simply abandon their land claims, or put their land up for sale to slum dwellers.

Other areas of the city will be improving as well due to the elimination of land speculation and land price inflation combined with the elimination of taxes on wealth creation. As land prices stabilize or even decrease, residents will have more savings to invest in further improvements, again with the possibility of more jobs for slum dwellers and more affordable housing being built which can give slum dwellers the opportunity to move out of the slums.

Also, as land price decrease or stabilize, slum dwellers who might choose to pool their savings, as some are already doing in Nairobi and elsewhere, can more readily afford to buy land on which to form new communities and build new dwellings.

As increasingly affordable land becomes available due to the pressure against land hoarding exerted by the land value capture policy, some former slum dwellers, gaining access to land in outlying areas, would start growing food to bring to market, thus further building a local based economy.

Now, in addition to these private incentives for improvements to be made by slum dwellers and other residents of the city, the land value capture system will have created a substantial amount of public funds which can be utilized for public benefit. All accounting of funds received via land value capture would be by law a matter of public record readily accessible to all.

With knowledge of their fair share of the public funds, slum dwellers and their allies would be politically empowered to insist that the money generated from land value capture be used to meet their basic human needs for clean water and sanitation, public transportation, health services and education.

These public services, combined with the steady decongestion of the slum areas as former slum dwellers found opportunities for employment and livelihoods elsewhere, would improve the quality of life and health for slum dwellers.

As living conditions and public services improve throughout the city, land values might again begin to increase. Public authorities would need to capture the full land rent and utilize these funds for public benefit.

It is conceivable that a city after a few years of land value capture in place could reach the stage of harmonious and balanced growth and development. Public authorities in consultation with the citizenry might then decide to distribute a portion of land rent back as direct “citizen dividend” payments, yet another beneficial result of a public finance policy based on the human right to land rent, the “social surplus.”

8.4 Lastly, to secure land tenure for slum dwellers or squatters, land boundaries should be clearly demarcated, use rights for specific parcels clearly established, and land values accurately assessed. These lands might best be legalized as leaseholds at least for a period of time because land values escalate immediately, often substantially, once legal land tenure is established. After such tenure is granted and titles secured for individuals on specific private parcels, poor people sometimes sell their parcels for immediate (but one-time only) cash benefit. In many cases such landless people sink into poverty again. With land value capture by means of government-leased land, land is secured for use rights of occupants, conditional only upon payment of a land lease fee. This could be quite low at first, a kind of subsidy, rising as the occupant¹s economic condition rises.

8.5 With a lease system, poor people do not need to purchase land for housing and thus do not need to pay compound interest on mortgage costs of land. They need borrow funds only if needed, for the cost of the dwelling itself.

8.6 Similarly, the private sector construction industry, when building multi-level apartment units, for instance, need not carry land mortgages for land purchase. Thus they can put more capital directly into increasing the supply of adequate, affordable housing.

8.7 Additionally, municipalities with a strong established land value capture system can use some of these funds to establish zero- or low-interest revolving home loan funds for poor and low-income people.

8.8 Student Activity 1: What questions or concerns do you have about the possible impact of land value capture on slum dwellers? Please send your questions to the course facilitator.

8.9 Here are some questions you might have, for example:

8.10 Question: What if a person living in a slum has no capacity whatsoever to pay their apportioned land value capture payment fee because they have no source of cash income or need what little they have to buy food? Would they be evicted?

Answer: Slum dwellers should have the legal option to contribute a certain number of hours of his/her labor for the benefit of the community equal to what they would pay in cash as their land value capture fee. Grassroots community leaders would decide where such labor would be best directed.

8.11 Question: But what if the person is too weak or sick to work?

Answer: With improving living conditions overall, one or a combination of these possibilities can help such a person: 1. family members of the weak or sick will have increased capacity to care for them; 2. some of the people contributing labor in lieu of cash payments for their land value capture fee could take care of people needing assistance; 3. the stronger basis of public finance can fund social services for people in need; and 4. assistance from private charities can be more readily available for those truly in need of help when those who can help themselves have found opportunities to do so.

8.12 Question: From my experience of living in the slums, it seems a lot of people there really could be productive in some way but there just never seems to be enough money. I still do not understand how land value capture can help people get money when there just are not any jobs.

Answer: There are now a number of examples of communities throughout the world issuing local currencies for local production and exchange. Money is after all not wealth, but rather a symbol of wealth that is useful because it is a great improvement over barter systems. As such, money can be thought of as a public utility. There should be no barriers put in the way of slum dwellers who wish to issue their own local currency. Clear guidelines should be available for “best practices” for slum communities who wish to do so. The acceptance of local currencies for partial or full payment of the land value capture fee also helps to legitimize local currencies.

8.13 Question: Renewing cities in this way seems to decentralize the role of government. What is the role of the national government with this system?

Answer: First of all, the national government can be most helpful by not standing in the way of local public authorities who want to implement land value capture. As the system is put in place locally, national government should be willing to reduce the tax burden on labor and productive activities while shifting its own revenue base to other “domains” of resource rent, such as extractive resources, electromagnetic spectrum for broadcasting and communications, or land rent from carefully managed forest or other public assets.

8.14 Bright minds and caring hearts should be at work on the national government level to curb pollution and provide environmental protection of air and water, encourage renewable energy development, resolve conflicts both within the country and in the surrounding region, and give guidance and support for building an overall balanced and sustainable economy for the entire country.

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